Eye on Employment: Obama’s New Deal

At Research Edge, we believe that the fear associated with unemployment trends in this country are backward looking. Importantly, there is a very high level of anxiety associated with the current trends and little belief that the trends could possibly reverse. As we have said before, the probability that there is a change on the margin and that the trends in unemployment accelerate at a lesser rate is a key component to our MEGA call for 1H09 – The E stands for Employment and a key goal communicated by President-Elect Obama concerning the American Recovery and Reinvestment Plan is that it should save or create at least 3 million jobs by the end of 2010.

It’s clear the drama of the current trends in unemployment will continue to play out in January and February, but increased confidence in the President’s process over the same time period, will positively impact consumer behavior. Contributing to the President-Elect’s process is a report issued by Christina Romer, Chair Nominee Designate, Council of Economic Advisors and Jared Bernstein, Office of the Vice President Elect, titled American Recovery and Reinvestment Plan. The report offered several key preliminary findings:

(1) A package in the range that the President-Elect has discussed is expected to create between three and four million jobs by the end of 2010.
(2) Tax cuts, especially temporary ones, and fiscal relief to the states are likely to create fewer jobs than direct increases in government purchases. However, because there is a limit on how much government investment can be carried out efficiently in a short time frame, and because tax cuts and state relief can be implemented quickly, they are crucial elements of any package aimed at easing economic distress quickly.
(3) Certain industries, such as construction and manufacturing, are likely to experience particularly strong job growth under a recovery package that includes an emphasis on infrastructure, energy, and school repair. But, the more general simulative measures, such as a middle class tax cut and fiscal relief to the states, as well as the feedback effects of greater employment in key industries, mean that jobs are likely to be created in all sectors of the economy.
(4) More than 90 percent of the jobs created are likely to be in the private sector. Many of the government jobs are likely include professionals whose jobs are saved from state and local budget cuts by state fiscal relief.
(5) A package is likely to create jobs paying a range of wages. It is also likely to move many workers from part-time to full-time work.
If the combination of lower interest rates and the American Recovery and Reinvestment Plan can, on the margin, stimulate consumer spending, the unemployment rate looks to peak around 8% in the summer of 2009. The markets, as a leading discounting mechanism, will factor the impact of these changes to the trends in unemployment in 1H09.

Howard Penney
Managing Director